Handbook of Information Security Management
(Publisher: CRC Press LLC)
Author(s): Hal Tipton and Micki Krause, Consulting Editors
ISBN: 0849399475
Publication Date: 01/01/98

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TRADE SECRETS

A trade secret is a “formula, pattern, device, or compilation of information which is used in one’s business, and which gives an opportunity to obtain an advantage over competitors who do not know or use it.” (Restatement of Torts, Section 757 [1939].) This advantage may be no more than a slight improvement over common trade practice, as long as the process is not common knowledge in the trade. A process or method which is common knowledge within the trade is not considered a trade secret and will not be protected. For example, general knowledge of a new programming language or operating system that an employee may gain on the job is not considered a trade secret. The owner of a trade secret has exclusive rights to its use, may license another person to use the innovation, and may sue any person who misappropriates the trade secret.

Trade secret protection does not give rights that can be enforced against the public, but rather against only those individuals and organizations that have contractual or other special relations with the trade secret owner. Trade secret protection does not require registration with government agencies for its creation and enforcement; instead, protection exists from the time of the invention’s creation and arises from the developer’s natural desire to keep his or her invention confidential.

Strict legal guidelines to determine whether a specific secret qualifies for trade secret protection have not been established. To determine whether a specific aspect of a computer software or security system qualifies as a trade secret, the court will consider the following questions:

  • Does the trade secret represent an investment of time or money by the organization which is claiming the trade secret?
  • Does the trade secret have a specific value and usefulness to the owner?
  • Has the owner taken specific efforts and security measures to ensure that the matter remains confidential?
  • Could the trade secret have been independently discovered by a competitor?
  • Did the alleged violator have access to the trade secret, either as a former employee or as one formerly involved in some way with the trade secret owner? Did the organization inform the alleged violator that a secrecy duty existed between them?
  • Is the information available to the public by lawful means?

Trade secret suits are based primarily on state law, not federal law. If the owner is successful, the court may grant cash damages or injunctive relief, which would prevent the violator from using the trade secret.

Trade Secrets and Personnel Practices

Because information systems and security professionals often accept new positions with competitors, organizations seeking to develop and protect their information assets must take special care to determine each candidate’s level of personal and professional integrity. The sensitive nature and value of the equipment and data that employees will be handling require an in-depth screening process. At a minimum, this should include a series of comprehensive pre-employment interviews that emphasize integrity as well as technical qualifications. Careful reference checking is essential.

When an employee joins the firm, the employment contract should expressly emphasize the employee’s duty to keep certain types of information confidential both during and after the employee’s tenure. The contract should be written in clear language to eliminate any possibility of misunderstanding. The employee must sign the agreement before the first day of work as a condition of employment and it should be permanently placed in his or her personnel file. A thorough briefing on security matters gives the employee initial notice that a duty of secrecy exists, which may help establish legal liability against an employee who misuses proprietary information.

These secrecy requirements should be reinforced in writing on a regular basis. The organization should inform its employees that it relies on trade secret law to protect certain proprietary information resources and that the organization will enforce these rights. All employees should be aware of these conditions of employment.

The entrance interview provides the best opportunity to determine whether new employees have any existing obligations to protect the confidential information of their former employers. If such an obligation exists, a written record should be entered into the employee’s personnel file, outlining the scope and nature of this obligation. In extreme cases and after consultation with legal counsel, it may become necessary to reassign the new employee to an area in which this knowledge will not violate trade secret law. Such actions reduce the risk that the former employer will bring an action for trade secret violation.

The employee should acknowledge in writing that he or she is aware of this obligation and will not disclose any trade secrets of the former employer in the new position. In addition, the employee should be asked if he or she has developed any innovations that may be owned by the former employer.

The organization should take special care when a new employee recently worked for a direct competitor. The new employer should clearly emphasize and the new employee should understand that the employee was hired for his or her skills and experience, not for any inside information about a competitor. The employee should never be expected or coerced into revealing such information as part of his or her job. Both parties should agree not to use any proprietary information gained from the employee’s previous job.

Trade Secrets and the Terminating Employee

Even when an employee leaves the organization on excellent terms, certain precautions regarding terms of employment must be observed. The employee should be directed to return all documents, records, and other information in his or her possession concerning the organization’s proprietary software, including any pertinent notes (except those items the employee has been authorized in writing to keep).

During the exit interview, the terms of the original employment agreement and trade secret law should be reviewed. The employee should then be given a copy of the agreement. If it is appropriate, the employer should write a courteous, nonaccusatory letter informing the new employer of the specific areas in which the employee has trade secret information. The letter should be sent with a copy of the employee’s employment agreement. If the new employer has been notified of potential problems, it may be liable for damages resulting from the wrongful disclosure of trade secrets by the new employee.

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